DA (02:38):
Hey Sean, thanks so much for joining me today on the SaaS Breakthrough podcast. How are you doing today?
SA (02:43):
I'm great. I appreciate you having me.
DA (02:45):
Yeah, I'm excited. We have a lot to go through. I think you're gonna bring a really unique perspective to the podcast today. Obviously as a serial entrepreneur, venture capitalist and a professor, you have a wide range of experience and funding, building and selling businesses. I know you exited a few startups already, like Mspoke and Peak Strategy to LinkedIn and Morgan Stanley. And now you're involved in Birchmere Ventures where you're a partner, I guess, tell us a little bit about Birchmere Ventures, when it was founded and what you guys are doing uniquely in the marketplace?
SA (03:18):
Sure. Yeah. So as you said, so I started and sold three companies back to back-to-back from basically when I dropped out of graduate school you know, over about a 12-year period and you know, the way that kind of the story goes and, and the experience that I went through to get there was I was in a research fellowship that typically would have led to more of an academic position. And I walked into my advisor's office and I said, look, I don't know what I want to be when I grow up, but I know I am not going to be a professor. And 12 years later came back to campus as a, to join the faculty as an adjunct faculty member. And I'm now what they call distinguished service professor. But but I tell that story because, and I'm sure for your audience with a lot of entrepreneurs here this will resonate with many of them.
SA (04:15):
One of the things that I love about entrepreneurship is that entrepreneurs are full of confidence in their vision of the future. And, and while sometimes they're wrong, they're never uncertain about those things. And so as I was in the middle of my third startup and I was getting ready to exit that one which was a media property actually kind of digital media property called ReadWriteWeb. I came back as adjunct faculty and what I realized, and this, this leads to now me spending my time kind of investing, teaching and, and kind of exhilarating activities there. What I realized was as much fun as doing startups was. And I still believe creating startups is one of the most fun things you can do in your professional career. When I came back and started teaching David, what I realized was even more than that, I just loved helping other people start things.
SA (05:07):
And so the, the first taste of that was teaching some of these graduate entrepreneurship courses, but over the last 10 years, that's broaden into teaching to investing, doing some writing and, and speaking and other things as well. But I think of them as all sort of different concentric circles, trying to help people be entrepreneurial and specifically in terms of the day job and investing, you know, what, I've, what I've come to really enjoy there is trying to be one of the first, what they typically would call institutional checks, or sort of post angels, post friends and family around, but kind of first professional checks and all, I mean by that is that people who, you know, myself and other VCs, like we wake up every day where the job we're doing, the primary job we're doing is, is finding deals, investing in deals and supporting those deals. So we are typically the first institutional check into those companies. And you know, the firm has been around for over two decades. But I joined about eight years ago and, and have been, you know, loving the act of investing on top of the other things that I do there.
DA (06:25):
That's fantastic. And that it actually makes sense, kind of this evolution through time of kind of what you found your passion in and kind of those concentric circles, as you said, and finding where, where does that passion come from? And I think we'll talk a little bit about that in a second here, but would love to know how that, that fun kind of discovered where to focus you know, their money into what, what businesses or industries are you looking at? I've never really understood, like what pushes a fund into a certain industry, or if it's just like their basic due diligence and understanding of those niches and industries. Is there something that you focus on specifically in that fund?
SA (07:05):
Yes. So this is a great question. And just for context for people who may not be familiar with how venture funds are structured, the way venture funds work in addition to myself and my partners money, we go out and we raise money from investors or what are called limited partners. And so we go, and we tell these, these investors in our fund, a narrative around this is, you know, generally how we're going to invest your money. These are the kind of deals that we'll do. And then, you know, many of them just like for the entrepreneurs listening where many of the entrepreneurs, when they pitch VCs, the VCs ultimately say, no, I often say raising money from investors is kind of the entrepreneur's revenge for a fund because we get a lot of no's too, but, but many do say yes as well.
SA (08:00):
And so you end up pooling a group of capital together, and then you use that capital to basically execute against the strategy that you sold your investors on. And every firm has different, what I would call kind of an investment thesis, that they're using to raise their money. And then they're, and then they're obviously in the normal situation, then execute against that thesis for the next three to four years where they make investments. And then typically for a fund, you'd have about six years of a kind of a tail on that, where you're managing and helping support the companies all the way through exits. So it's, you know, it's typically about a 10-year horizon for a fund. I like to think about, and, and so, so I think so that's sort of the structure. So I think what you're really driving at is like, what's the investment thesis of Birchmere and I can talk about that, but I think one thing that's important for entrepreneurs to understand is that different funds have different investment thesis, right?
SA (09:06):
And so if you're an entrepreneur pitching, it's very fair to think about like, okay, is this fund a good match for the kind of business that, that we that, you know, that I am, and in the same way that, you know, entrepreneurs talk a lot about product-market fit, right? Being in a good market with a product that satisfies them. I think it's important for entrepreneurs also think about when they're raising money, does this fund fit my startup or not? And you know, because if you're talking to a multibillion dollar fund that, that has told their investors, you know, we're gonna write 10 to $30 million checks for mature businesses and your business just finished an accelerator and has single-digit thousands of recurring revenue, right. There's just not a fund startup match there. And so no matter how compelling the venture capitalist finds your startup, the reality is it's, it's not a match, right?
SA (10:08):
So there's, it's just not a good use of either of your time. You can use those meetings to say, Hey, are there other people you think I should be talking to whatever, but I would encourage entrepreneurs to really target those conversations on funds who match the stage business that they're in, the sectors, the kind of some funds are very geographically focused, right? So if you're pitching a fund that only does deals in Silicon Valley, and you're based in the Southeast of the US that's not a great use of probably either of your time as well, right? So there's different theses for different funds. The Birchmere thesis is really a couple fold. It's again, very early. So it's typically first institutional check. We would look for some evidence of product-market fit, right? That we're solving a real problem. And we tend to invest in places where we think there's a more reasonable supply and demand ratio between entrepreneurs and capital, which is just kind of a fancy way of saying typically don't do many deals in Silicon Valley where there's a lot of funds chasing in, in my opinion at least, you know a pretty limited number of fundable deals.
DA (11:21):
That makes a lot of sense. And I guess, to push that even further, when you joined the fund itself, what unique things are you bringing in as a partner? Are they, are you getting recruited into the fund? Are you looking to join it because of the sectors and the niches and industries that they're working on and that thesis that they already have for investing? And is there a reason for you know, SaaS founders to think about reaching out to specific partners in a fund, if they feel like maybe their you know, background industry knowledge kind of fits where that SaaS is?
SA (11:55):
Yeah. That's a great question. So let's kind of take those in order, cause there's kind of three questions there. So the first question, the first part of your question is like how do partners join funds basically? And similar to the lots of funds have different investment thesis. Different funds I think, think about adding partners differently. Some funds are just frankly allergic to it. Like they're just likely never going to add partners and the kind of life of the fund matches to the life of the partners there. I don't know if they still feel this way, but probably the most famous example, five or six years ago as recently as five or six years ago was Foundry the the fund that, that Brad Feld, Jason Mendelson, and that whole crew run, many of your entrepreneurs, even if they don't know the name Foundry probably are familiar with Brad and Jason's book Venture Deals.
SA (12:54):
They were very proactive about like, we, we are not going to add junior partners and try to do any type of transition. I'm not sure if that's still their position or not, but they, at a point in time, they were very focused on that. Other funds, right, there's, there's a real goal for the fund to outlive the life of the founding partners. And so there's a bit of kind of transition planning if you will, to pass the fund from one group to the next. Some funds frankly bring in partners as a way to expand, broaden, or pivot their investment strategy. Sometimes pivot to something brand new, sometimes I've, I've often seen a lot of GPs, which is general partners, kind of the name often that you use for partners in a, in a venture fund, but I've seen a lot of GPs come in and actually kind of re snap the fund back to their original thesis.
SA (13:50):
And you know, if there's kind of investment drift, sometimes you'll, you'll bring in some new partners to add life and perspective to that. You know, in the case of me joining Birchmere, I when I joined, I actually raised a small fund with the two other partners right off the bat as a way to test some ideas that I had around the future of venture, which we called Birchmere Labs. And ultimately some of those things worked out well, others didn't but many of the things that did work out well ultimately became the foundation that we raised our next larger fund on. So the fund has actually technically invested six funds, but there's Birchmere Ventures one through five, and then there's a Birchmere Labs fund One. That Labs fund One was the fund that I raised when I joined. And then I helped take some of the things that worked well on that and apply that thesis to Birchmere Ventures Five as a, as a kind of more traditional funds. The Labs was roughly a $10 million fund for perspective and Birchmere Ventures Five was a roughly $50 million fund.
DA (15:05):
Very helpful. Yeah. That really makes a lot of sense as you say that, and were you using Labs as almost like an agile approach to fundraising there?
SA (15:15):
I don't know if I would say an agile approach to fundraising, but I think it was, I think it had some kind of lean startup methodology to it in the sense that it was very much an experiment, right. And so, you know, certain things would work, certain things wouldn't work, and it was a small investor base that was, you know that understood the, the riskiness of the Labs fund and that we would incorporate things if they worked into the Birchmere Ventures Five fund and, you know, frankly, some things did and some things didn't. I feel really good about the overall return of Birchmere Labs One and also what we're going to do in Five. But but you know, not every experiment that we ran in Labs worked out for what it's worth.
DA (16:04):
Yeah. As expected with experiments. Right.
SA (16:06):
That's right.
DA (16:08):
But great. Well, listen, sitting on the other side of the table has got to be a very interesting part of this growth process for you. You've been on the other side, in the startup world with your three different startups you know, now sitting on the opposite side with the experience that you've already gathered, you know, what did you take away or what do you take away when you sit down and you listen to founders as far as, as you mentioned before, like the vision and the passion that they come in with, is there something that you're specifically looking for when they come in and start talking about their startup?
SA (16:38):
Yeah, so absolutely the reality is that we're trying to invest at a point where there's evidence of product-market fit, but the numbers themself, but, you know, the business is far from a math equation at that point. So to, to, you know, make this precise for a SaaS startup, cause I know that's primarily your audience, right? They might have a, a handful of customers that are paying something but probably the way they sign those customers up may help you kind of project what your customer acquisition costs are going to be. But certainly they don't have any kind of machinery where you can have precise calculations around things like CAC to LTV or payback period at scale or anything like that. Right. So we're, we're gonna put some money in, you know, typically around for us is going to be 750 to a couple million bucks with the goal of kind of figuring those things out. Right. And, and the reality is like at that stage of startup what you want to, you know, what you want to do is you want to look at the numbers, but you also want to hear the narrative behind those numbers. And I think to me, the magic is when you have a founder who, who has a compelling vision, that feels like a massive opportunity of successful. But you know, also has some, some early quantifiable and qualitative data to back up that narrative that they're telling you.
DA (18:23):
Makes sense. And then when you're hearing that and you start to invest and put the money out there, are there or have there been winning signs early on, on the companies that have paid off well on that kind of experiment or that investment? Is it just having those numbers early on? Is it just having a large vision, is about, you know, understanding the marketplace early on, like which ones are winning and which ones are kind of falling down, I guess, along the way, or is it mostly the founders too go into it?
SA (18:54):
It's kind of all of the above to be honest. You know, this is an area wearing my Carnegie Mellon hat that I've spent quite a bit of time actually trying to do some, some, some more rigorous research on, because one of the things that I think is awesome about helping support and create entrepreneurs is the lean startup methodology and the impact that the lean startup methodology has had on giving us frameworks, best practices and and I think at least as important vocabulary to talk about idea to product-market fit, right. And I think in SaaS, my opinion is it, product-market fit is more a neighborhood than it is a street address. Right. You kind of know when you get there. There are, you know, there are things you can, metrics you can look at to provide some evidence of it, but it is, you know, a little qualitative and a little quantitative, especially in kind of enterprise SaaS solutions.
SA (20:02):
But one of the things that I've personally been really taken by, and this is actually was a major research project for me at Carnegie Mellon from 2013 to 2016, was this question of what comes after product-market fit? Because the reality is that many companies, especially in the SaaS space, get to product-market fit at about the same time and one scales up and one stalls out. And I think, especially in SaaS, it's not because one has more product-market fit than the other, but it's because they do certain things, post-product-market fit to win. And starting in 2013, I started working with students to analyze pairs of companies who had achieved product-market fit at the same time and looked at why some scaled up and other stalled out. So, you know, why do you have a Facebook account, but not a Friendster account?
SA (21:05):
You know, why are you driving a Tesla instead of a Fisker? Why do you probably host your blog on WordPress, but not on MovableType? What's interesting about all these examples is in none of the three examples I just gave you was that the company who got there first was the company that ultimately won. There certainly are examples of companies where there's a first mover advantage and ultimately that's why they win. But what we saw is that companies that one got to product-market fit and they, they did a lot of the lean startup things to get themselves there. We saw a little bit of a gap in helping companies assess whether they really had product-market fit or not. And also I think a little bit of a gap around assessing for friction in that product-market fit solution. And so we ended up coming up with what we called four prerequisites that are, we think are important to focus on before you scale up and do those consecutively.
SA (22:08):
Then what we saw is that many of the companies used one or two of four techniques that we documented in the research for what we called catalyzing events or things that change the slope of the line of the startups, and then did five things to maintain or sustain that growth for the long term. And so we did this research through 2016, we turned it into a course on campus at Carnegie Mellon. It was actually one of the, it is still actually one of the more popular courses on campus. And then that course turned into a more of a traditional business book if you will, called, go to the same name as the course called The Science Of Growth. And that book has gone on to be translated into Mandarin, into Korean. It's been published on Audible as well. And so there are, there are literally tens of thousands of entrepreneurs every year who are now consuming this, this content in much the same way that, you know, 10 years ago they consume the lean startup content to ask themselves this question of, okay, if I get a business to product-market fit, how do I scale up instead of stall out?
DA (23:13):
Are there specific examples of those catalysts that we could pull from that, just for the sake of this conversation for like SaaS marketers? Or is it just too much of conceptualization within the book?
SA (23:23):
Oh no, no, no, no, no. We can. Absolutely. So we can zone right in on that middle step. So if you have product-market fit and you're trying to S to change the slope of the line, my argument is you should think about these four techniques, these four catalyzing events, not with the goal of doing all four of them, but think of it more like a grab bag menu, which of these one or two make the most sense for you. And so the four techniques are viral growth. So how do you add virality of your product to dramatically accelerate the slope of the line? What we call drafting off of platforms or solving problems on larger engage platforms, where your solution can tie into it. The next example that, or the next technique that we talk about is what we call double trigger events.
SA (24:13):
These are events that actually come much later in the startup's journey, but often when history is written later, they're talked about as what launched quote unquote, you know, launched that company. Right? So if you think about Twitter at South by Southwest, right. Twitter had been around for seven months before South by Southwest, but if you ask most people, you know, quote unquote, when did South by, when did Twitter launch, they'd say, Oh South by Southwest March 12th, what was that? 2010 or something like that? I forget the year off the top of my head. So there's double trigger events, drafting off platforms, viral growth. And then the last one is optimizing algorithms. And the key of optimizing algorithms is less like optimizing algorithms or recommendation systems that are well known and RD arbitrage. So, you know, in 2020 trying to optimize the Google algorithm is not that helpful.
SA (25:18):
But in, you know, but seven or eight years ago, Mint was a master at optimizing these recommendation algorithms before anybody else got there. So what they did around optimizing search engine content or optimizing the app stores became incredibly effective. And so you've got these kind of four techniques. And what I encourage entrepreneurs to do is think about which of these four techniques make the most sense for me. And so in the, maybe in the interest of time, I'll unpack an example of how a SaaS entrepreneur might use one of these four techniques, just as an example. But first I just want to make sure David did, did those four kind of strategies make sense to you?
DA (26:01):
No, absolutely makes sense. And I will be linking to the book, The Science Of Growth as well. It sounds very, very amazing as far as getting into this deeper, but from a conceptual level, yes. Makes total sense.
SA (26:13):
Okay, cool. So let's talk about the double trigger events, because I think, I think this is one of the great misnomers in entrepreneurship today, right? We, you know, when I went to graduate school 20 years ago and told people I was going to be an entrepreneur, their honest reaction was like, Oh man, that's too bad. Like you couldn't get a job in banking or consulting. I was like, no, I could, I just didn't want to, but today, like students come to Carnegie Mellon specifically to be entrepreneurship students. Right. And in that...
SA (26:46):
Very much a cultural shift it feels like right.
SA (26:48):
It's a massive cultural shift. Absolutely. Right. And this cultural shift right is I think (inaudible) good because I think more people focusing on entrepreneurship is, is absolutely fantastic. But, but here's the sort of nuance, if you will. The problem is a lot of that is because they've seen these movies that have sort of made entrepreneurship look like a little bit more of a straight line than it really is. And often most of those stories pick up post-catalyzing event, right? So Twitter launched at South by Southwest, or Airbnb launched at the DNC convention. Neither of those are true. The founders have been working on those companies for many, many, many months before those events, but what happens? And this is important if you're an entrepreneur thinking about this for your startup, is what happens is those events ended up dramatically accelerating or changing the slope of the line because a bunch of people who had the problem, your product solved, were sitting at that event and you stepped in and solved it.
SA (27:57):
Right. I don't know if you were at South by the year Twitter launched there or not.
DA (28:02):
No I was not.
SA (28:02):
I, I had been, so I have been going to South by, for years before that. And was there that year as well. The big problem, first of all, it's worth pointing out at that point, South by Southwest was mostly a music festival with a small film festival. The, you know, the week before that had one corner of the convention hall doing this kind of weird interactive festival, right? So it is not the South by Southwest that people think of in, well this year, there wasn't one because of COVID. But in 2021, it's not that version of South by. But the big problem that Twitter solved was people could, were really wondering, like what's the right panel for me to sit in on during the day. And more importantly at night, where are they serving free alcohol at which of the parties?
SA (28:49):
And it turned out Twitter was an incredibly useful tool to find out the answer to those questions. Now, if it had only been useful for that, it wouldn't have mattered. But what was interesting is people then went home and kept using Twitter and so these 10,000 people experienced Twitter at South by Southwest went home and kept using it. People come to me every year at the beginning of the year and say, Hey, should I launch my startup at South by Southwest? And there's two important questions here. One does your product actually solve a real problem that the conference goers have these days? Most of the time, the answer is no, especially in SaaS (inaudible) the answer is no. And even if the answer to that is yes, South by may still not be the right place to launch anymore because the reality is today you're competing with Chevy, Ford, Pepsi, right?
SA (29:39):
Major brands have gone and taken over that conference. Back then nobody was advertising and interactive. And so for a few thousand dollars, the guys at Twitter were able to set up some monitors and have people become aware of their service and start using it. So that that's a little more on the technique itself. You want to ask yourself, like, does this event solve my problems? And can I cut through the noise there right. Now as this relates to SaaS? I think what you want to think about is where are there businesses that have a problem that my SaaS solution solves, where they see where they come together and I can get a lot of executive visibility into my solution solving these problems in a focused and constrained environment. And so I'll tell a story which I tell in the book, but I'll go into a little bit more detail here because it's an interesting subscription example of this.
SA (30:36):
We had a business called NoWait, which this is not in the book cause it's happened after the book came out, but ultimately we would sell to Yelp. And what NoWait did is they replaced the hockey puck pagers with SMS messages and mobile apps to allow you to check into restaurants remotely. So this is an open table. These are restaurants that are working more off of a wait list than a reservation system. And we were doing this research at the time on science of growth at Carnegie Mellon. And I was on the board of NoWait and we're trying to figure out how we could do exactly this if we didn't have the term catalyzing event yet, but we're trying to figure out how we could really capitalize the growth of NoWait. And what we ended up realizing was there was a South by Southwest equivalent for NoWait, which is the masters golf tournament in Augusta, Georgia.
SA (31:36):
I'm not sure if you've ever been to the tournament or not David?
DA (31:39):
I have not yet.
SA (31:41):
Augusta turns out is a very small town. It's a couple hours away from Atlanta and for 51 weeks out of the year, there's not a lot going on in Augusta Georgia. And so the restaurants match pretty well to the population there, but for one week a year, the busiest restaurants in America are in Augusta Georgia. It turns out actually the busiest restaurant every year during the golf tournament in all of America is the Hooter's restaurant in Augusta, Georgia for that week. They literally set up an entire parking lot of tables and tents so that they can sit outside the building as well, right. 15 different hosts working the stand for that week. And so, so you have these restaurants that are, you know, incredibly busy with, you know, two hour waits and, and this is important.
SA (32:45):
And executives from those restaurants coming to quote unquote, check on the restaurant and also probably watch a little golf during the tournament. And so we, we basically replicated the South by Southwest experience at Augusta Georgia during the masters tournament for NoWait. We sent a young sales executive to live in Augusta for four months. He signed up 50 restaurants. There's 90 total restaurants in Augusta. So 50 of the 90 restaurants were using the NoWait platform by the time the golf tournament rolled through. And that, you know, that magical experience that the diners had that year of seeing their, their wait, watching it in line was not just had by the diners, but was also had by the CEO of Chilis and the vice president of operations for Buffalo Wild Wings and a number of the Seasuite from the Hooters restaurant chain as well.
SA (33:45):
And in the case of Buffalo Wild Wings and Chilis those later would end up being enterprise wide deals across the entire franchise group plus their stores. But that happened because we were able to, to again, have this catalyzing event at a place like Augusta. Now it would have been tempting to just try to copy the playbook one for one from South by Southwest to Twitter, to South by Southwest to NoWait. But again, doesn't really fit because too crowded a market to try to launch in today. There were no other tech companies trying to do this catalyzing event at the masters that year. So we were able to control the narrative, get a lot of PR around it, make a bunch of executives aware about, of our solution, and really dominate the conversation for a few days. And so to me that that's a great example of a SaaS company applying this double trigger event to their business, but doing it in a way where they're picking the right event for them and the right techniques specifically for what they're trying to achieve.
DA (34:52):
That's a fantastic example, fantastic story. You know, I think it also says a lot about the founding team and the creativity that you had to think of, like, how do we apply this? Where can we go looking for those opportunities for the creative opportunities for those things as well. And I think right now, and kind of this COVID era, it's a little bit, it'd be harder to do events like that. Like you said, it's also more of a you know, red ocean right now in SaaS, B2B SaaS. A lot of companies are having to look to pivot or change based on the market conditions, you know, with your background as a founder and also being more of a mentor now, as you know, in the, in the fund itself, how are you seeing, you know, these founders kind of approach the situation? How are they looking at evaluating pivots or how are you recommending to them to reevaluate the way that they look at these growth items?
SA (35:43):
Yeah, so unfortunately there's no one size fits all to that either, right? Transparently. We have some SaaS companies and certain sectors where their businesses actually, in some ways I think on, so in a short term everybody's been impacted by this, but, but as we've sort of gone from the shock of March and April to where we are today, what you're seeing is I think what you're seeing is certain companies, this is actually a tailwind on a long term basis for them, right? So education technology, healthcare, you know, digital healthcare and, health tech where, you know, we're looking for more remote services and more digital transformation in those sectors. Right. And then there are other sectors that have been been really facing a ton of resistance. The closest to general advice that I'm giving to entrepreneurs is this, is that I think what becomes really important is that companies don't just try to get back to where they were before, but instead apply that creativity, that innovation that got them to where they are, to reimagine their future. Right. So, you know, the kind of quick way that I often say it is, you know, you don't want to just reopen your business or kind of turn the faucet back on if you will, but you really want to reimagine your business.
DA (37:20):
So this is the time to bring back in the lean methodology, come back in with creative thought and maybe what, clear out the whiteboard and just kind of rethink it. I mean, are you just thinking like from a, instead of a pivot perspective, it's what do we need to (inaudible)?
SA (37:36):
In general I think that's true. I mean, with the caveat that certain businesses are actually having the exact opposite experience right. Where they're accelerating, not decelerating, because you know
DA (37:48):
I would say that's us, you know, we're, we're webinars. We saw explosive growth through this and, and I definitely feel grateful for that.
SA (37:55):
Sure. So you, you get it right? Like remote, remote learning, like I'm, you know, I've, you know, I've seen this with, you know, the workshops I do with a lot of fortune 500 companies around innovation, right. They've, they've gone from, Hey, can you fly to, you know, middle of the country and spend two days with our team to, Hey, can we, we beam you in from Florida, you know, combination of video and in-person asynchronous and synchronous but over the web conversations. Right? So, so your, you know, your virtual events, same thing. So different businesses are going to react differently to this. I think if you're in a business that's experiencing a tailwind right now, you need to ride that. But if, but for many of these businesses that are in more of the red ocean, as you say, point in their development, I think it becomes really important to retrench and really focus on re-imagining your business.
DA (38:49):
Yeah. That makes sense. And also, I guess, from your personal experience, do you have any advice for maybe founders that are thinking of maybe taking this time to exit? Is there ever an ideal time for a founder to exit and what caused you to maybe hit that advice in your own businesses?
SA (39:07):
Yeah, so I think the important thing here is, as it relates to this question is great companies are bought not sold. So there are times where you have to manufacture an exit, you know, maybe you're running out of money or the window's closing for some reason, and that you got to get the best deal you can. But in general, what you want to do is build a business that has options, build a business that doesn't ever need to exit anywhere, or at any point in time, and then have companies proactively approaching you, not the other way around. And then once they do, you still want to run a, run a competitive bidding process, but you want to be in the driver's seat where you're, you're really having them trying to buy you versus being in a situation where you have to sell. There are absolutely entrepreneurs right now I think who, because the tides have turned against them, maybe a strong headwind in the industry they're in, they may need to manufacture some exits and those aren't pleasant. And, you know, you gotta run the process, be diligent and get from here to there. But if you can make the cuts, make the adjustments to control your own destiny, strongly encourage you to do that.
DA (40:17):
Yeah, that makes, that makes a ton of sense. And you know, I had a podcast guest on here maybe about six months ago and kind of predicted that there may be, you know, a kind of a roll back, from all the VC funding didn't see this economic hit, but, you know, that there might be more of those fire sales. Like you're saying just companies that can no longer sustain the growth that they had with the funding that they had, and that's a bad position to be in. But, but to your point, is there any elements or any you know, advice that you would give to sustain growth during times like this, or sustain that long term success to get to those bidding wars?
SA (40:56):
Yeah. Well, so, so two things I think to the guest you had on six months ago or whatever, I think SoftBank in the event that sort of implosion of SoftBank in the venture ecosystem did certainly change growth, growth stage investors, that's much later than us perspective on, you know, multiples of pipeline versus multiples of EBITDA. Right. And, and so, so you did see some correction happen, pre-pandemic because of that as well. In terms of the sustained long term growth, like, you know, I think there's a, there's a bunch of techniques and, you know, in the interest of time, I won't go through all of them now, but there's five that we talked about in the book. The one that I think is incredibly important in this pandemic plus recession challenging time that we're in right now is I would really encourage entrepreneurs to do what I call be data-informed, but not data-driven.
SA (41:53):
And what I mean by that is I think you can over optimize at moments like this, but what you want to do is you want to mix quantitative data plus business expertise to make sure you're making the right choices for your business, the right choices about your financial forecast, the right choices about where you're spending and where you're, you're pealing back. That's not something that a spreadsheet can give you all of the answers to, but it can certainly give you some of the right answers and it can certainly, it certainly should inform the decisions that you're making.
DA (42:23):
That's really good advice. Yeah. I love that. And looking forward, asking your kind of opinion on what the next six months are going to be, it's obviously really difficult to say. Where you're seeing the economy going kind of your thoughts on where everything is going, maybe in the SaaS marketplace in particular, do you have any advice or things that companies' founders need to be aware of or capitalize on kind of moving forward?
SA (42:47):
Yeah, I think I mean, there's, there's lots in, and one of the great things about entrepreneurs is they see things others don't other people don't. So I'm always curious by, you know, how different entrepreneurs see around corners, if you will. But the thing that I've, at a macro level would observe in terms of the next six months and sort of this economic uncertainty, certainly global pandemic, all these different challenges that we're going through right now is I think you're going to see a lot of companies interested in buying SaaS tools that allow them to do more with less. So whether that's kind of classic digital transformation or that's applying machine learning and artificial intelligence to automate routine cognitive tasks and take costs out of what are kind of generally historically robotic, but human processes. I think you're going to see just an amazing appetite in those general areas from buyers, from the different SaaS offerings that are available. And so I think to the extent you can focus your messaging and your targeting around that, I think you'll be well served.
DA (43:58):
Makes sense, save money, save time, reduce overwhelm, stuff like that. The things that will kind of help as companies retract a little bit. Great. Well, what I want to do now is switch to our lightning round questions. Just five quick questions that you can answer with the first best thought that comes to mind.
SA (44:17):
Cool.
DA (44:17):
Ready to get started?
SA (44:18):
Yeah.
DA (44:19):
Awesome. Let's do this. What advice would you give for early stage SaaS companies starting marketing today?
SA (44:27):
Go spend money and find channels that your competitors aren't. I think there are a ton of arbitrage opportunities in digital marketing these days, especially with all the kind of variants in the market. And so I think there are some real arbitrage opportunities around CAC these days.
DA (44:46):
Yeah, I think definitely right now there's a ton. What skill do you think is vital for marketing teams to improve and build on today?
SA (44:53):
I mean, I don't think this is a new answer, but I do think most SaaS marketing firms could be better at storytelling. When I watch our companies go from good to great, I'm thinking about one of the SaaS companies in our portfolio that, you know, a few years ago added a new VP of marketing and she just did an amazing job taking the company from good to great. I think on the marketing side, I think what she did is she in addition to come up with the right strategy and that kinds of, I think she really helped the company tell their customers' stories in a much more compelling way.
DA (45:29):
I love that. Yeah, we'll have to get her name because we're looking for a new VP of marketing, so that's perfect.
SA (45:34):
She is not available.
DA (45:37):
What about a best educational resource you'd recommend for learning about marketing or growth?
SA (45:42):
So I think actually in marketing and growth, I think there's sort of two different types of education resources. So one is sort of frameworks and beyond, beyond my book, which that's feels selfish to recommend. The other book I would recommend is Reid Hoffman's Blitzscaling, I think that's a great kind of conceptual framework for companies trying to build that type of startup. But I actually think for a lot of marketers focusing on the tactics really matters. And the challenge with focusing on the tactics is that books aren't great formats to deliver that in because they're out of date kind of before they hit publish. And so I think in places like that, I'm just shocked with the amount of really great tactical advice you can find around digital marketing on the web places like Quora and different blogs and things like that.
DA (46:31):
Yeah. There's some really great blogs out there with a ton of tactical information. And to your point, the hard part about tactical is sometimes they go by the wayside really quickly. So you know blogs makes sense. What about a favorite tool you can't live without?
SA (46:46):
So I kind of, I mean, I, you know, I have all the usual tools that you would expect, right? The iPad and laptop and all that. But I will tell you a tool that, that I love that people may not be as familiar with is the, the Bamboo tablet, which basically allows me to take notes on paper, but have those notes electronically sync to Evernote as well. So that you know, I can in a meeting just be taking notes on what looks like it's on a legal pad, but then have those notes in Evernote so that I can search them, organize them all of that later. That's probably a less common tool that I can't live without.
DA (47:24):
Yeah. That sounds amazing. Unfortunately, my handwriting's so bad I wouldn't be able to read the notes afterwards.
SA (47:31):
Mine's pretty bad, but it still works. But yeah, I hear you.
DA (47:35):
Yeah, definitely. Once you start getting used to reading handwriting again, we're so used to typing these days. What about a brand business or a team that you admire?
SA (47:43):
Yeah, great question. I mean, I think the, this is probably not a new answer, but I do think in terms of companies that do brand well, it's hard to think of a better example than Nike. I mean, they just continue to impress me with their ability to create content, create narrative and use that to really, to really build this, this incredible brand.
DA (48:09):
I love it. That's a great answer. I just want to say thank you so much for coming on Sean. It was great to have your perspective, your advice, your thoughts. You're so well-spoken so, you know, I really appreciate your time and your wisdom today.
SA (48:21):
Thanks, David. I appreciate what you're doing here and hope all the SaaS entrepreneurs listening have incredible success.
DA (48:27):
I love that. Thanks again, Sean. And we'll talk to you soon.
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About Sean Ammirati:
